All you need to know about CCI Dawn Raids

Kashish Khattar is a fourth-year law student at Amity Law School, Delhi. This article mainly revolves around the importance of Dawn Raids.

Introduction

“Dawn raid” also known as “unannounced or surprise search and seizure” is a special type of investigation that is majorly used by all the investigative agencies around the world to probe into major antitrust or competition law violations.

These surprise checkings are made without any notice or warning and are usually conducted at times when least expected, often at the crack of “dawn” and/or during weekends. These raids are typically done in a covert manner leaving no scope to the party or the company being investigated to alter their records in any way.

In the case of Multinational Companies (“MNCs”), simultaneous raids can happen at multiple jurisdictions or at different places in the same jurisdiction. Dawn raids signify the resolve of the CCI to actively conduct intrusive operations to enforce the provisions of the Competition Act, 2002 (“Competition Act”).

The power to conduct a dawn raid is conferred upon the DG under the provisions of Section 41 of the Competition Act. In particular, sub-section (3) of section 41 of the Act empowers the DG with the same powers relating to search and seizure, as they apply to an Inspector in terms of Section 240 & 240A of the Companies Act, 1956 and 217 and 220 of the Companies Act, 2013. The Code of Criminal Procedure, 1973 (“CrPC”) is applied to each and every search and seizure operation carried out by the DG. Since the CrPC mandates that search and seizure operations be conducted with a judicial warrant, DG has to seek a warrant from the Chief Metropolitan Magistrate (“CMM”) in Delhi before conducting a dawn raid. They are usually done when the Competition Commission of India (“CCI”) has strong suspicions about the company being involved in major antitrust violations. They include alleged involvement in typical cartel activities such as Pricing, Volume and Territory agreements or exchange of sensitive company information between competitors. Setting resale prices for dealers can also be one of the reasons for a dawn raid investigation. Dawn raids typically happen in connection with cartel activities.

In a dawn raid, around fifteen officials can be present with the possible presence of the police. The officials have the right to enter the business office, search in the lockers and desks, and look through computers and their respective servers. They are at liberty to open safes, search the private premises and also look through the vehicles. They have the authority to make copies of incriminating documents and also seize the original copies of the same. Typically, they are more inclined to look through the digital work product of the company including their emails, documents, calendars and travel documents. Employees may and most definitely will be questioned. When the investigations are to happen for a much longer term than expected, the whole of rooms and computer servers may be sealed off to main the status quo of the evidence.

There are only two instances of Dawn Raids (“Raids”) that have taken place in the Indian scenario. The first one is the case of M/s JCB India Ltd., an Indian subsidiary of a UK based construction company (“JCB”). The raid was conducted due to JCB’s alleged non-co-operation in the process of investigation by the DG in an allegation of abuse of dominant position. The Competition Act empowers the DG to conduct such raids after obtaining a warrant from the CMM, Delhi. The second instance involved the dry cell battery maker, Eveready with the same allegations about the abuse of dominant positions. The recent case of the CCI raided the office of three brewing companies on the pretext of price-fixing allegations. The antitrust watchdog raided the offices of United Breweries, Carlsberg and Anheuser-Busch InBev. The CCI was tipped off by one of the companies due to the leniency program filed with it which gave the details about the alleged price fixing.

The CCI has a provision for the leniency program which mainly reduces the penalty of the party in default. The party on their end of the deal have to make “vital disclosures” on their cartel activity. That typically means giving out all the information with sufficient evidence which enables the CCI to make a prima facie case in relation to the cartel activities. The advantage of this leniency program for the party is to get a priority status which ensures the reduction in penalties from the regulator.

If a company is subjected to a dawn raid, they should take care of a lot of factors and take immediate steps to ensure that their interests are protected on the day, try to understand the know how’s of a Dawn Raid. This would help them make better decisions on where they stand in the investigation and how they should react to contain consequences and fallouts.

Essential Prerequisites for Dawn Raid

There are certain Limits, Conditions and a specific Manner in which Dawn Raids can be conducted, they are as follows:

The office of the DG has to help the CCI in investigating into contravention of any Acts/Rules/Regulations. It is the duty of the DG to be fair and impartial in carrying out investigation and formulating his report in any case. They have to be logical and reasoned to meet counter arguments of the charged company or enterprise.

An investigation by the DG only begins when directed by the CCI, and formation of a prima facie case against the charged enterprise should not influence the investigation by the DG in any way.

During the Investigation, the DG can typically decide to conduct a search and seize various documents. Before conducting the search and seizure operation, the DG, however, is required to obtain a legal search seizure warrant from the CMM, Delhi.

Certain documents that have to be presented by the DG before commencing the Raid-

The company always asks for the CCI order directing the officials for an investigation, though they are not obliged to supply this under the Act. The company should insist on the warrant by the CMM directing the DG to do his search and seizure operations and check the following details: –

Is the office address of the company mentioned?

Is there any offence that is alleged to be committed by the company mentioned in the warrant?

III. Is there any specific mention of what this operation wants to search (documents, rooms, digital work products etc.)?

Is everybody accounted for (check the names of all the police personnel and officials in the warrant)?

Further, have you looked at the identity proof of all the personnel present in your premises?

The rights of the company during the unannounced inspection

To insist on the presence of an independent witness during the search and seizure operations and to refuse to answer direct self-incriminating questions;

To be allowed a reasonable time for calling the in-house counsel or external counsel to arrive. It is not obligatory for the investigating team to wait for the arrival of the lawyer(s);

To ask for identity cards of all the officials to verify their authority to conduct this search as per the warrant of the CMM and the scope of the raid. It is advisable to confirm the authenticity by calling the DG;

To object to search in the absence of a search warrant from the CMM. You can also object if the officials extend the scope of the investigation on the spot;

To insist on getting a copy of the “Seizure Memo” at the end;

To object to review or making copies of the “privileged documents” including confidential communication between the client and its external attorney; and

To ask for copies of the records, statements recorded during the search and seizure operation, including disputes, objections taken in respect with privileged documents etc.

Obligations of the company

The company is not to tamper or break the official seals affixed by the officials in the premises, rooms, cupboards and documents. Breaking a seal is a criminal offence. Further, the affected party should never use force to stop any kind of investigations.

How do law firms help

Law firms ensure that their clients get 24-hour legal services across India who are facing dawn raids investigations. The firm will provide the client with an immediate and structured dawn raid response which in turn helps them save time and money. The firm ensures that their clients are way more prepared for a dawn raid by conducting mock raids, offering compliance education to all the employees and providing the whole staff with comprehensive guidelines explaining their respective roles in a raid, if such a need arises. Setting up a dawn raid response team can also be suggested.

A dawn raid in a non-cartel investigation can be avoided by cooperating with the office of the DG during the investigation such as giving rational, logical answers to the questionnaire sent by the DG through notices. Further, responding to any personal examination by the DG is a good idea.

How a dawn raid is managed

In cases of serious competition law violations like participation in mainstream cartel activities, dawn raids are usually resorted to. In a situation like that, some steps can be followed to avoid further damage to the company:

The company should be prepared for a dawn raid, a manual checklist or a quick guide should be read by all the employees. The legal team can be consulted if there are any doubts regarding the same.

Cooperation with the investigators is appreciated without trying to force any information out of them.

Avoiding aggression is the best way to go.

Making extensive notes/copies of all data take and the document should be there.

If it is made possible, statements should only be given in the presence of a lawyer.

Altering or destroying documents after getting to know about the raid is an offence.

An official seal should never be broken.

Advance preparation of the dawn raid checklist and quick guide and the process flowchart for each department along with the constitution of a dawn raid response team from the key departments which are likely to come or should remain in contact with the inspecting staff are absolutely necessary.

Follow up after the Raid

After the conclusion of the dawn raid, the following essential steps are to be followed with care: –

Conduct a review meeting by taking inputs from all the concerned parties.

Preparing a press release statement and circulating it to the media to avoid wrong information that can be spread by unreliable sources.

Secure the seizure memo, copies of all documents and notes prepared during the inspection, including a list of documents, and all the electronic data taken during the inspection.

Prepare a de-brief note for the top management and external lawyers.

Forward the de-brief note to the external lawyers, pointing out irregularities, if any, noticed during the raid and requesting an urgent opinion on the action to be taken.

Conclusion

Dawn Raid for a fact tarnishes the image and the goodwill of the raided company. It also dampens the business prospects of the company in the ever growing competitive environment. Hence, it is extremely important for business and their associations to guard of such an unpleasant visitor. It is a good step for the company in place a detailed and effective programme to handle these kinds of search and seizure operations. Enterprises against which enquiry has already been commenced should extend all cooperation and give out all the correct documents within the given time. Adherence to this golden principle not only triggers out the penalty provisions but also minimises the risk of being raided by the DG.